Saturday, 15 August 2009

George Osborne's dishonest defence on inheritance tax

What was to be an important week for the Conservative Party to stake out its "progressive credentials" has ended with the party leadership firefighting against Dan Hannan's attacks on the NHS.

So George Osborne speaks to John Harris of The Guardian to seek to get the ProgCon script back up and running. (With Phillip Blond interviewed last week, it is beginning to look as if the main aim of the Progressive Conservatism is to secure column inches in the Guardian).

The effect is slightly spoiled by Osborne offering what must be either a deeply confused or a dishonest defence of his policy to raise the threshold for inheritance tax to £1 million.

Harris asks, "how can he say it's a waste of resources to give tax credits to people who earn around £50,000 a year, and yet still propose to raise the inheritance tax (IHT) threshold to £1m – funded by a levy on so-called "non-doms" – which would only benefit those at the very high end?"

Yet Osborne has a very different view of who gains from this policy:

We're not talking about multimillionaires," he says. "We're very clear that millionaires should pay inheritance tax. But people who have worked hard, bought their own home, sometimes it's a council house that they've bought …

... The proposal, as you know, is to lift the inheritance tax threshold to a million pounds," he eventually says, "so that includes all sorts of people with inheritances of less than a million pounds."

This is obviously nonsense as a description of who benefits from Osborne's proposed tax break - and on both fronts too.

Two small problems of fact here.

1. Could George Osborne please identify say a dozen 'right to buy' owner occupiers of their former Council Houses who would be currently liable to pay inheritance tax when estates are tax-free prior to the threshold of £650,000 for married couples or £325,000 for individuals?

2. As for claimng that those poor multi-millionaires who will miss out, of course, the full benefit of the new threshold can only be realised by those with estates worth £1 million or more.

A single person bequeathing an estate worth over a million or more will get a tax break of £270,000, as they would currently pay 40% of the last £675,000 and will now pay nothing. No estate worth less than £1 million can do as well as that.

The biggest gainers of all from Osborne's policy will be couples with estates worth over £2 million, who are currently in a position to bequeath £650,000 of that tax free. Here, Osborne is offering a tax break of over half a million pounds, so that no tax is paid.

That makes Osborne's claim that the Tories are "very clear that millionaires should pay inheritance tax" another misleading description of the impact of his own policy. As The Telegraph noted in disclosing the £2 million threshold for couples, the Conservatives had not sought to publicise that the £1 million threshold would be transferable. Meanwhile, estates worth £5-£10 million or more would also receive the maximum possible benefit from the change, while those worth less than £1 or £2 million would not.

The foundation of the progressive Conservative project was presented as being the party's commitment to redistribution to narrow inequalities with the pledge to judge all future Tory policies would be judged by their impact on the worst off.

This a tax break that does most for millionaires, despite Osborne's claims. And it does nothing at all for those who have brought their council houses, despite his claim to the contrary.

So which would be more worrying: that the would-be Chancellor doesn't know who his flagship policy would benefit? Or that the standard bearer of the progressive Conservatism knows very well who the gainers are - but wishes to pretend that it isn't the case?

No comments: